News & Updates


NAIC Says It Needs More Data As Credit Score Inquiry Continues


Published 9/24/2009
NU Online News Service, Sept. 24, 10:22 a.m. EDT

NATIONAL HARBOR, MD—The nation’s insurance regulators ended their latest look at the use of consumer credit records as an underwriting factor by declaring they need more information.

Two officials said insurers have failed to be forthcoming with material during the joint session of two committees of the National Association of Insurance Commissioners. The panels are due to teleconference again on the issue in a month.

Meeting in a combined session were the Property and Casualty Committee/Market Regulation and Consumer Affairs Committee. The committees began looking into credit scoring in March when they received authority to join forces on the issue. Regulators at that point said they wanted more information on the practice and how it is used.

Property and Casualty Committee Chair and Illinois Insurance Director Michael McRaith said the committees are in a better place now than they were in March as far as information obtained and refining their questions to the insurance industry.

“The charges [of the committees] did not have a time frame,” Director McRaith said after the session, “Our objective is ongoing.”

He said with each new finding, new questions are raised. “As we receive information, like any responsible regulator, it will lead to more questions. And as we learn more about this practice, we learn more about the different participants within the industry and we are looking to get additional answers.”

Director McRaith also said the Property and Casualty Committee will look into marital status as a rating factor in the near future, stating that while it could be argued that credit is a reflection of behavior, the use of marital status is more suspect in that regard.

Regarding the state of the joint committee inquiry into insurance scores, both Director McRaith and Oklahoma Insurance Commissioner Kim Holland, who chairs the Market Regulation and Consumer Affairs Committee, expressed frustration with answers provided by insurers.

Commissioner Holland said during the meeting she needs forthright information from the industry and credit agencies to fully understand the issues, but said respondents have been using semantics to avoid direct answers in an attempt to regulate actions against them. “I feel like these conversations go around in circles,” she said.

Director McRaith said afterward, “These are the same arguments; the same rhetoric that has been circling one meeting after another for years and years. What we are trying to do is move past the rhetoric. That’s why this is an effort that is not going to be completed in a day, or month, or even half a year.”

The meeting itself focused largely on whether regulators should regulate providers of credit-based insurance scores, such as FICO [Fair Isaac Corporation], as “advisory organizations,” an idea opposed by those providers and the insurance industry.

The insurance score providers develop the scoring models used by insurance companies.

Industry and insurance scoring provider representatives said regulators already have access to the models themselves, and argued the providers do not qualify as advisory organizations under state laws.

Birny Birnbaum, executive director of the Austin Texas-based Center for Economic Justice consumer group, said the providers are advisory organizations, but argued that the debate over whether commissioners should regulate them is a distraction from the real issues surrounding insurance scores.

He said regulators should be more concerned with collecting independent data on insurers’ use of credit information so that claims made by the industry can be verified.

But collecting data is the purpose of regulating insurance scoring companies, Director McRaith said. He explained that if insurance scoring companies are subject to oversight as advisory organizations, regulators can “review them from top to bottom” and develop a solid, fact-based understanding of what they do and how they develop models.

Director McRaith said the committees will hold a conference call in four weeks to discuss specific information that regulators will be seeking.

Director McRaith said the committees will continue to ask direct questions to the industry, but will also use regulatory authority to collect desired information from insurance companies.

Both he and Commissioner Holland said the committees will be careful to check with individual state regulators to make sure insurers are not forced to comply with multiple requests for the same information.